An interesting day in the markets with traders in Europe keen to ‘bridge the gap’ from Fridays European close to Monday’s open. This led to a nice relief rally as traders recouped some of the losses of late last week. In fact one of our clients’ biggest ever winning days which (given that the movements were not huge) indicate the size of the positions held.
This morning sees a different emphasis with indices under pressure again as South Korea reports weaker than expected numbers and the UK prepares to confirm the exodus from recession. As mentioned many times in this comment the recent recession has been something of a curate’s egg in the UK with the vast majority of the populous still in gainful employ and enjoying bills that are substantially lower than in times past due to the ultra low interest rates reducing mortgage payments to levels unheard of in modern society. Unfortunately these winners are balanced, of course, by the minority of losers in the equation who have turned the economy into the ‘bad’ section of the egg and, for all the fact that the majority are ‘all right jack’, this has not been enough to save the economy or the public purse.
We are now down at 5225 for the FTSE and are threatening to have another pop at the major support of 5180/5200 mentioned several times in past comments. Clients are getting long at current levels as the expectation seem to be that the support will hold and the recent weakness still reflects a buying opportunity. Friday’s high of 5340 proved to be too difficult for the markets to overcome yesterday and the old resistance range from 5350 up to 5375 may well prove to be dominant on any return to the upside.
While the actual trading range of the last few days has been limited the market has managed to travel the whole scope several time making for a certain increase in volatility and nervousness.
The US markets are joining in on the uncertainty with the late move in the Dow and the S&P and early morning action following the weak Asian markets returning us to the closing levels of Friday.
The GDP number has just about saved Darling’s bacon, coming in at plus 0.1pc (!) which will have a seriously dampening effect on the incumbent administration’s hopes for re-election. With other global economies climbing steadily out of the mire this half hearted number will not go down well at all. While it is positive economists know full well that productivity increases will have been more than this, so the chances of any swift dent in the jobless numbers will be slim.
The pound is likely to be the biggest loser as interest rate hikes (needed to see off the reawakening inflation genie) will be pushed further down the time lines. Not only this but the QE programme which seemed to be on the way out may well have another leg to go. Possibly good for equities, bad for gilts (long term) and bad for currency.
Sterling has retreated back to the support area from 1.6100-1.6140 on the news giving up a cent this morning. Traders will be eyeing this level quite closely as any breach might see a swift acceleration down into the lower areas of the current eight month trading ranges (1.56/1.59). This said clients are seeing this as a good buying level as well following the reasoning that it has held so far over the past week so it is at least worth a punt today as well.
The Euro is also weakening versus the dollar and more pertinently the Yen as more and more positions are weeded out. Versus the Dollar there is support below 1.4060 down to 1.4000 but the momentum does not seem to be in favour of the currency just at them moment. Versus the Yen we are probing levels not seen since last April the charts do not make happy reading and if 125.60 is broken traders may be eying retests of the lows of January last year. The current cross is 126.13 so still some way above the support at least.
Gold hit the resistance level of 1103/05 mentioned yesterday and fell away but at the moment seems to have no appetite below the wide range low of $1090 also mentioned. We are now back at the lows at 1091 but, for the moment, seeing no follow through to send us lower.
Oil is drifting again as well but, as with the previous three sessions, has bounced off 74 bucks. Our clients are similarly confident here as well which makes it pretty much a full house of buying across the board (Oil, Gold, Indices, Sterling and Equities).
Confidence seems very high which (oddly) is rather worrying!